This Memorandum is intended to remind you of certain annual requirements. All investment advisers (whether or not registered) should review Part I. In addition to Part I, registered advisers should also review Part II and advisers to private equity and venture capital funds should also review Part III.
I. Requirements Applicable to All Advisers
A. Schedule 13G and Schedule 13F. The annual filing due date for amendments to Schedule 13G is Tuesday, February 16, 2010. It should be noted that in addition to this annual filing amendment obligation, investment advisers may also have amendment obligations throughout the year relating to Schedule 13D, Schedule 13G and Section 16 filings. The quarterly filing due date for Schedule 13F is Tuesday, February 16, 2010 for the fourth quarter of 2009, May 17, 2010 for the first quarter of 2010, August 16, 2010 for the second quarter of 2010 and November 15, 2010 for the third quarter of 2010.
B. Privacy Policy. Each investment adviser is required to provide its clients with an annual privacy notice describing the adviser’s policies regarding its disclosure of clients’ nonpublic personal information. The annual notice must be provided at least once in any period of 12 consecutive months. The privacy notice must disclose the types of information the adviser collects and shares with others and the procedures the adviser has implemented to safeguard that information. If an adviser discloses nonpublic personal information about its clients to third parties (other than to affiliates and certain service providers), the adviser must also provide an “opt-out” notice, giving the client the opportunity to request that the adviser not disclose the information to such third parties.
C. New Issue Eligibility. An investment adviser should obtain an annual verification of each client’s new issue eligibility status.
D. Contractual Obligations. Many counterparty agreements, investor side letters and other documents executed by private funds or investment advisers contain periodic notice, reporting or other requirements. We recommend that an adviser review all such documents carefully and comply as necessary.
E. Form 5500 Filing. An investment adviser may be required to provide its ERISA plan investors with certain information relating to ERISA plan assets managed by or invested with an investment adviser in order to enable ERISA plan investors to file their annual Form 5500 with the Department of Labor. The Form 5500 filing due date is the last day of the 7th calendar month after the end of the plan year (July 31st for calendar year plans). An investment adviser may, alternatively, elect to file the Form 5500 on behalf of a “plan assets” investment fund, in which case, the filing must be done no later than 9 ½ months after the end of the fund year (October 15th for calendar year funds).
F. Private Offering Exemption Filings.
1. SEC Form D. An annual amendment to a private fund’s Form D filing must be made electronically with the Securities and Exchange Commission for each private fund which (i) relies upon Rule 506 under Regulation D of the Securities Act of 1933 as a “safe harbor” under the Act’s Section 4(2) private offering exemption from securities registration and (ii) makes a continuous offering. In addition to the annual amendment, updates to such filings may be required if there are material changes to the information included in a filing, e.g., the name or address of the issuer. A fund’s annual amendment is due on or before the anniversary of its initial SEC Form D filing or if an amendment has been made to its initial filing, on or before the anniversary of the most recently filed amendment. We recommend that investment advisers promptly notify us about all sales and material changes so that we can prepare and make the appropriate filings within the required timeframe.
2. State Blue Sky Notice Filings. A state blue sky notice filing is generally a one-time filing made at the time of the first sale by a private fund in a state. There are, however, certain states that have an annual renewal requirement. In addition, updates to state blue sky filings may be required if there are material changes to the information included in a filing, e.g., the name or address of the issuer. We recommend that an investment adviser inform us about all sales that have taken place in any state within 5 calendar days of a subscription (and in the case of New York, prior to the investment adviser making an offer in New York) as many states impose penalties for late filings. Filings generally consist of a copy of the fund’s SEC Form D and, in some cases, a Form U2.
II. Requirements Applicable to SEC Registered Advisers
A. Compliance Policies and Procedures. Each registered adviser is required to perform an annual review of the firm’s policies and procedures. The annual review must assess the adequacy of the adviser’s compliance policies and the effectiveness of their implementation. The SEC has indicated that, in conducting its annual review, a registered adviser should consider any compliance matters that arose during the previous year, any changes in the business activities of the adviser or its affiliates, and any changes in the Investment Advisers Act of 1940, as amended, or applicable regulations that may suggest a need to revise the policies and procedures. In determining the adequacy of an annual review, the SEC has indicated that it will consider a number of factors, including: the persons conducting the review, the scope and duration of the review and the adviser’s findings and recommendations resulting from the review.
We recommend that the findings and recommendations resulting from the review be documented. Upon completion of the annual review, the adviser’s compliance manual should be updated to reflect suggested improvements and/or regulatory changes. In connection with the annual review, each registered adviser should perform all other annual reviews required by its compliance manual such as a review of its business continuity and disaster recovery plan.
B. Form ADV.
1. Annual Amendment. In addition to any interim required amendments, each registered adviser must update its Form ADV within 90 days of its fiscal year end. For an adviser with a fiscal year ending December 31, the annual updating amendment must generally be completed by March 31 of the following year. All amendments to Part 1 of Form ADV must be filed with the SEC electronically through IARD. An adviser must deposit the appropriate filing fee into the adviser’s IARD financial account prior to submitting its amendment. A registered adviser may elect to file Part II of Form ADV electronically with the SEC, but is not obligated to do so. We recommend that advisers update Part II regularly, and at least annually.
2. State Notice Filings. A state notice filing is required in any state in which an adviser has a specified number of clients. However, while the number of clients permitted in a state before a notice must be filed is generally five, the number differs from state to state. Each registered adviser should check the requirements for each state in which it has clients. New notice filings may be made on the annual ADV updating amendment by checking the relevant box in Part 1, Item 2.B. and depositing the appropriate state fee(s) into the adviser’s IARD financial account. Renewal fees for each such state notice filing are generally due in December of each year.
C. Brochure. Each registered adviser is required to offer its “brochure” (typically Part II of Form ADV) to its advisory clients on an annual basis. We recommend that a registered adviser whose clients are private investment funds should extend the offer to all investors in the funds. If a client requests Part II of Form ADV, the adviser must send the client a copy within 7 days of the date of the request. Each adviser is required to keep copies of the annual offer letter to clients. We recommend that the adviser also keep copies of any subsequent requests and the (dated) letter by which Part II of Form ADV is transmitted to the client.
D. Audited Financial Statements. A registered adviser that has custody of a private investment fund’s client assets may satisfy its obligations under the custody rule by providing audited financial statements of the fund to investors in the private investment fund within 120 days after the end of the pool’s fiscal year (180 days under SEC staff guidance in the case of a fund-of-funds). The financial statements must be prepared in accordance with U.S. generally accepted accounting principles by an independent public accountant (who, commencing with the fund’s 2010 audit, must be registered with, and subject to regular inspection by, the Public Company Accounting Oversight Board). For a private investment fund with a fiscal year that ends December 31, the annual audited financial statements must be sent to investors by April 29 of the following year (June 30 for funds-of-funds).
III. Requirements Applicable to Private Equity and Venture Capital Fund Advisers
A. VCOC/REOC Certifications. In the Limited Partnership Agreement of a fund that operates as a “venture capital operating company” (“VCOC”) or a “real estate operating company” (“REOC”) under ERISA, the general partner has usually agreed to deliver to ERISA investors an annual certification regarding the fund’s VCOC or REOC status. Both VCOCs and REOCs must retain documents sufficient to demonstrate compliance with the requirements. Recent investigations by the Department of Labor have been requesting such items as airline, hotel and other expense receipts to demonstrate attendance at the meetings of the Board of Directors and on-site inspections.
